SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period from_________to_________
Commission file number 0-26140
MINORPLANET SYSTEMS USA, INC.
| Delaware | 51-0352879 | |
|
|
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 1155 Kas Drive, Suite 100, Richardson, Texas (Address of principal executive offices) |
75081 (Zip Code) |
| Registrant’s telephone number, including area code (972) 301-2000 | ||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Number of Shares Outstanding as of | ||
| Title of each class Common Stock, $.01 par value |
January 12, 2004 9,671,484 |
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
| PAGE | |||||
| NUMBER | |||||
PART I. |
FINANCIAL INFORMATION |
||||
Item 1 |
Consolidated Financial Statements: |
||||
Consolidated Balance Sheets at November 30, 2003
and August 31, 2003 |
3 | ||||
Consolidated Statements of Operations for the three
months ended November 30, 2003 and 2002 |
4 | ||||
Consolidated Statements of Cash Flows for the
three months ended November 30, 2003 and 2002 |
5 | ||||
Consolidated Statement of Changes in Stockholders’ Equity
for the three months ended November 30, 2003 |
6 | ||||
Notes to Consolidated Financial Statements |
7-14 | ||||
Item 2 |
Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
15-18 | |||
Item 3 |
Quantitative and Qualitative Disclosures About
Market Risk |
18 | |||
Item 4 |
Controls and Procedures |
18 | |||
PART II. |
OTHER INFORMATION |
||||
Item 6 |
Exhibits and Reports on Form 8-K |
19 | |||
Signatures |
19 | ||||
2
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
| November 30, | August 31, | |||||||||||
| 2003 | 2003 | |||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 2,547 | $ | 5,105 | ||||||||
Accounts receivable, net |
3,683 | 4,710 | ||||||||||
Inventories |
1,546 | 2,190 | ||||||||||
Deferred product costs - current portion |
1,467 | 1,600 | ||||||||||
Other current assets |
805 | 1,081 | ||||||||||
Total current assets |
10,048 | 14,686 | ||||||||||
Network,
property, equipment and software, net |
3,508 | 3,865 | ||||||||||
Deferred product costs - non-current portion |
2,165 | 2,429 | ||||||||||
License rights, net |
32,831 | 33,485 | ||||||||||
Other assets, net |
1,682 | 1,635 | ||||||||||
Total assets |
$ | 50,234 | $ | 56,100 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 994 | $ | 1,703 | ||||||||
Telecommunications costs payable |
1,808 | 2,500 | ||||||||||
Accrued interest payable |
410 | 903 | ||||||||||
Deferred product revenues - current portion |
3,231 | 3,316 | ||||||||||
Other current liabilities |
5,236 | 5,511 | ||||||||||
Total current liabilities |
11,679 | 13,933 | ||||||||||
Deferred product revenues - non-current portion |
5,868 | 6,217 | ||||||||||
Senior notes and other notes payable |
14,319 | 14,316 | ||||||||||
Other non-current liabilities |
398 | 2,144 | ||||||||||
Total liabilities |
32,264 | 36,610 | ||||||||||
Commitments and contingencies (Note 4) |
||||||||||||
Stockholders’ equity: |
||||||||||||
Common Stock |
97 | 484 | ||||||||||
Preferred Stock - Series E |
— | — | ||||||||||
Additional paid-in capital |
220,748 | 218,601 | ||||||||||
Accumulated deficit |
(202,313 | ) | (199,033 | ) | ||||||||
Treasury stock |
(562 | ) | (562 | ) | ||||||||
Total stockholders’ equity |
17,970 | 19,490 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 50,234 | $ | 56,100 | ||||||||
See accompanying notes to consolidated financial statements.
3
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
| Three months ended | |||||||||||
| November 30, | |||||||||||
| 2003 | 2002 | ||||||||||
Revenues: |
|||||||||||
Product |
$ | 319 | $ | 614 | |||||||
Ratable product |
1,412 | 2,677 | |||||||||
Service |
5,086 | 10,338 | |||||||||
Total revenues |
6,817 | 13,629 | |||||||||
Cost of revenues: |
|||||||||||
Product |
389 | 647 | |||||||||
Ratable product |
717 | 1,964 | |||||||||
Service |
2,853 | 5,423 | |||||||||
Total cost of revenues |
3,959 | 8,034 | |||||||||
Gross profit |
2,858 | 5,595 | |||||||||
Expenses: |
|||||||||||
General and administrative |
2,100 | 2,504 | |||||||||
Customer service |
882 | 940 | |||||||||
Sales and marketing |
1,141 | 4,180 | |||||||||
Engineering |
442 | 465 | |||||||||
Depreciation and amortization |
1,138 | 1,462 | |||||||||
| 5,703 | 9,551 | ||||||||||
Operating loss |
(2,845 | ) | (3,956 | ) | |||||||
Interest income |
114 | 124 | |||||||||
Interest expense |
(531 | ) | (530 | ) | |||||||
Other expense |
(18 | ) | (111 | ) | |||||||
Loss before income taxes |
(3,280 | ) | (4,473 | ) | |||||||
Income tax provision |
— | — | |||||||||
Net loss |
$ | (3,280 | ) | $ | (4,473 | ) | |||||
Basic and diluted loss per share: |
|||||||||||
Net loss per share |
$ | (0.34 | ) | $ | (0.46 | ) | |||||
Weighted average number of shares outstanding: |
|||||||||||
Basic and diluted |
9,670 | 9,670 | |||||||||
See accompanying notes to consolidated financial statements.
4
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| Three months ended | ||||||||||||
| November 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (3,280 | ) | $ | (4,473 | ) | ||||||
Adjustments to reconcile net loss to cash used in
operating activities: |
||||||||||||
Depreciation and amortization |
484 | 808 | ||||||||||
Amortization of license rights |
654 | 654 | ||||||||||
Amortization of discount on notes payable |
15 | 15 | ||||||||||
Provision for bad debts |
265 | 435 | ||||||||||
Amortization of deferred service revenues |
(117 | ) | (2,627 | ) | ||||||||
Loss on equipment retired |
22 | — | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Decrease in accounts receivable |
883 | 1,378 | ||||||||||
Decrease (increase) in inventory |
644 | (382 | ) | |||||||||
Decrease in deferred product costs |
397 | 847 | ||||||||||
Decrease (increase) in other assets |
108 | (206 | ) | |||||||||
Decrease in accounts payable |
(709 | ) | (914 | ) | ||||||||
Decrease in deferred product revenues |
(434 | ) | (74 | ) | ||||||||
Decrease in accrued expenses and other liabilities |
(1,362 | ) | (459 | ) | ||||||||
Net
cash used in operating activities |
(2,430 | ) | (4,998 | ) | ||||||||
Cash flows from investing activities: |
||||||||||||
Additions to network, equipment and software |
(86 | ) | (210 | ) | ||||||||
Purchases of short-term investments |
— | (5,485 | ) | |||||||||
Redemptions of short-term investments |
— | 6,750 | ||||||||||
Net cash (used in) provided by investing activities |
(86 | ) | 1,055 | |||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from sale of service contract |
— | 650 | ||||||||||
Payments on capital leases |
(42 | ) | (18 | ) | ||||||||
Net cash (used in ) provided by financing activities |
(42 | ) | 632 | |||||||||
Decrease in cash and cash equivalents |
(2,558 | ) | (3,311 | ) | ||||||||
Cash and cash equivalents, beginning of period |
5,105 | 10,413 | ||||||||||
Cash and cash equivalents, end of period |
$ | 2,547 | $ | 7,102 | ||||||||
Supplemental cash flow information: |
||||||||||||
Interest paid |
$ | 991 | $ | 990 | ||||||||
Taxes paid |
$ | — | $ | — | ||||||||
Non-cash investing and financing activities: |
||||||||||||
Conversion of related party liability to capital contribution |
$ | 1,760 | $ | — | ||||||||
Purchases of assets through capital leases |
$ | 63 | $ | 94 | ||||||||
See accompanying notes to consolidated financial statements.
5
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share information)
| Preferred Stock | Common Stock | Additional | Treasury Stock | ||||||||||||||||||||||||||||||||||
| Paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Total | |||||||||||||||||||||||||||||
Stockholders’ equity at August 31, 2003 |
1 | $ | — | 48,424,960 | $ | 484 | $ | 218,601 | 75,799 | $ | (562 | ) | $ | (199,033 | ) | $ | 19,490 | ||||||||||||||||||||
Net loss |
(3,280 | ) | (3,280 | ) | |||||||||||||||||||||||||||||||||
Related party capital contribution |
1,760 | 1,760 | |||||||||||||||||||||||||||||||||||
Reverse stock split |
(38,739,968 | ) | (387 | ) | 387 | (60,639 | ) | — | — | ||||||||||||||||||||||||||||
Stockholders’ equity at November 30, 2003 |
1 | $ | — | 9,684,992 | $ | 97 | $ | 220,748 | 15,160 | $ | (562 | ) | $ | (202,313 | ) | $ | 17,970 | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
6
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
1. Liquidity and Going Concern Uncertainty
Minorplanet Systems USA, Inc., a Delaware corporation (the “Company”), has incurred significant operating losses since inception and has limited financial resources to support itself until such time that it is able to generate positive cash flow from operations. The Company had cash and cash equivalents of $2.5 million as of November 30, 2003. Net cash used in operating activities during the three months ended November 30, 2003 of $2.4 million was primarily attributable to the ongoing Vehicle Management Information ™ (“VMI”) operations. Interest paid on Senior Notes during the three months ended November 30, 2003 was $1.0 million.
The Company has been unable to achieve the projected sales volumes under its current sales model. Management is actively working to revise the current sales model to achieve the volumes necessary for positive cash flow and eventual profitability. However, in order to continue as a going concern and ultimately achieve a profitable level of operations, the Company believes it will need a minimum of $5 million in additional capital resources to sustain its normal operations for the next twelve months. To that end, the Company is actively seeking additional funding. The Company may obtain the funds in the form of stock issuance, debt securities, or a combination of the two, or otherwise. The sale of additional equity or convertible debt securities would result in additional dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, holders of these securities could obtain certain rights and preferences senior to holders of the Company’s common stock, as well as restrict the Company’s operations. There can be no assurance that additional financing will be available or available on commercially acceptable terms. Should the Company not continue as a going concern, it may be unable to realize its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the amounts and classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company believes the VMI license rights will provide the Company significant marketing potential of the licensed VMI technology, enhancing future results of operations and reducing the need for capital resources to develop similar technology. The licensor, Minorplanet Limited, is solely responsible for future developments and enhancements of the VMI technology under the VMI license. As a result of the sale to Aether Systems, Inc. (“Aether”) of certain assets and licenses related to the Company’s long-haul trucking and asset-tracking businesses, Aether is contractually obligated to continue to reimburse the Company for the network and airtime service costs related to providing service for HighwayMaster Series 5000 (“Series 5000”) units as long as such units remain active on the Company’s network. On July 8, 2003, the Company and Aether extended the transition period during which such Series 5000 units remain active on the Company’s network until January 30, 2005.
Critical success factors in management’s plans to achieve positive cash flow from operations include:
| • | Ability to raise additional capital resources. | ||
| • | Renewal of the service vehicle contract with SBC. At November 30, 2003, the Company had approximately 33,000 units in service with the member companies of SBC Communications, Inc. (“SBC Companies”), pursuant to the service vehicle contract (the “Service Vehicle Contract”), which accounted for approximately 66% of the Company’s installed base. The current Service Vehicle Contract with the SBC Companies expires on January 30, 2004 and may be renewed under the same terms for an additional one-year term at the option of the SBC Companies. Management currently believes that SBC intends to renew the Service Vehicle Contract for an additional year. | ||
| • | Significant market acceptance of the VMI product line in the U.S. Management believes the market for products such as VMI represents a total potential of approximately 20 million vehicles. Currently, management believes this market is approximately five percent penetrated with asset tracking and vehicle information management solutions. | ||
| • | Maintain and expand the Company’s direct sales channel. New salespersons will require training and time to become productive. In addition, there is significant competition for qualified salespersons, and the Company must continue to offer attractive compensation plans and opportunities to attract qualified salespersons. | ||
| • | Maintain and expand indirect distribution channels. |
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| • | Securing and maintaining adequate third party leasing sources for customers who purchase VMI. |
There can be no assurances that any of these success factors will be realized or maintained.
2. Business Overview
The Company develops and implements mobile communications solutions for service vehicle fleets, long-haul truck fleets, and other mobile-asset fleets, including integrated voice, data and position location services. As a result of the completion of the transactions contemplated by the Stock Purchase and Exchange Agreement by and among the Company, Minorplanet Systems PLC, a United Kingdom public limited company (“Minorplanet UK”), and Mackay Shields LLC, dated February 14, 2001, the Company commenced marketing the VMI product licensed from Minorplanet Limited, the operating subsidiary of Minorplanet UK, into the automatic vehicle location (“AVL”) market in the United States during the last half of the calendar year 2001. The Company currently markets and sells the VMI product in Dallas, Texas; Houston, Texas; Atlanta, Georgia; Los Angeles, California; and Austin, Texas. VMI is designed to maximize the productivity of a mobile workforce as well as reduce vehicle mileage and fuel-related expenses. The VMI technology consists of: (i) a data control unit (“DCU”) that continually monitors and records a vehicle’s position, speed and distance traveled; (ii) a command and control center (“CCC”) which receives and stores in a database information downloaded from the DCU’s; and (iii) software used for communication, messaging and detailed reporting. VMI uses satellite-based Global Positioning System (“GPS”) location technology to acquire a vehicle location on a minute-by-minute basis and a global system for mobile communications (“GSM”) based cellular network to transmit data between the DCU’s and the CCC. GSM is a digital technology developed in Europe and has been adapted for North America. GSM is the most widely used wireless digital standard in the world. The VMI application is intended to be targeted to small and medium sized fleets in the metro marketplace, which the Company believes represents a total U.S. market of approximately 20 million vehicles.
VMI provides minute-by-minute visibility into the activities of a mobile workforce via an extensive reporting system that provides real-time and exception-based reporting. Real-time reports provide information regarding a vehicle’s location, idling, stop time, speed and distance traveled. With real-time reporting, the user can view when an employee starts or finishes work, job site arrival times and site visit locations. In addition, exception reports allow the user to set various parameters within which vehicles must operate, and the system will report exceptions including speeding, extended stops, unscheduled stops, route deviations, visits to barred locations and excessive idling.
The Company’s initial product offering, the Series 5000, was developed for and sold to companies that operate in the long-haul trucking market. The Company provides long-haul trucking companies with a comprehensive package of mobile communications and management information services, thereby enabling its trucking customers to effectively monitor the operations and improve the performance of their fleets. The initial product application was customized and has been sold to and installed in the service vehicle fleets of the SBC Companies under the Service Vehicle Contract. During the fourth calendar quarter of 1999, the Company entered the mobile asset tracking market with the introduction of its trailer-tracking product, TrackWare®. During the first calendar quarter of 2001, the Company began marketing and selling 20/20V™, a low-cost tracking product designed for small and medium sized fleets in the transportation marketplace.
On March 15, 2002, the Company completed the sale to Aether of certain assets and licenses related to the Company’s long-haul trucking and asset-tracking businesses pursuant to the Asset Purchase Agreement effective as of March 15, 2002, by and between the Company and Aether (the “Sale”). Under the terms of the Sale, the Company sold to Aether assets and related license rights to its Platinum Service software solution, 20/20V™, and TrackWare® asset and trailer-tracking products. In addition, the Company and Aether agreed to form a strategic relationship with respect to the Company’s long-haul customer products, pursuant to which the Company assigned to Aether all service revenues generated post-closing from its Series 5000 customer base. Aether, in turn, agreed to reimburse the Company for the network and airtime service costs related to providing the Series 5000 service.
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